Confusion in the Numbers
Mark Oliver, MD of H+H, discusses how after the deepest and longest house building depression in history we are now, thankfully, experiencing an upturn. The latest estimate from the Construction Products Association predicts that by the end of this year there will be 138,139 new home starts. That’s an increase of 16.7 per cent on last year and a jump of 29.5 per cent since the darkest days of the recession in 2009 when there were only 106,635 new home starts.
But we cannot take it for granted that the current upturn will continue indefinitely. Looking back over the HBF statistics since the end of World War Two it becomes apparent that we operate in a very volatile market. Since 1946 there has only been three other upsurges in house building; 1962-64, 1981-88 and 2001-07. Looking more closely at the numbers relating to these periods in time there is a clear, if somewhat discouraging, pattern: each upturn has been shorter in time that the one before, with a slower gradient of growth and a lower peak.
This could mean anyone looking for confirmation and clarity with regards to how the house building industry will fare in the immediate and long term futures is going to struggle. As a manufacturer the figures we at H+H pay the most attention to are those from the Construction Products Association (CPA). However, the CPA only forecasts to 2017 and any significant business decisions, such as investing in production capacity will need to be based on scenarios as far into the future as 2027. So naturally we have to make our own assumptions.
The CPA forecasts suggest that come 2017 we will be starting 188,369 new homes, but the Government would like this to be 220,000 and the Policy Exchange want it to be 250,000. I am less optimistic, expecting ‘only’ 157,000 new homes to be started in 2017, which would still mean an increase of almost 50 per cent in only 8 years since the 2009 nadir.
Looking beyond 2017, which most manufacturers need to do, the critical assumption to make is the timing, duration and magnitude of the next house building peak. Based on historic patterns and a slowdown in gradient when help to buy ends I would suggest that the next house building peak will occur around 2022 and be around 180,000 starts, unless of course something major changes. There is a gulf between this view and the aspirations of the Government and the many think tanks. That may be due to the belief that we will see some significant change. But for it to make an impact the change needs to come sooner rather than later.
The varying political parties and prominent policy developers differ on their targets and thoughts on house building. The Government and Conservative party have not, to my knowledge, disclosed any targets for house building, but many others have. In November, the Policy Exchange called for the next government to commit to building 300,000 homes a year during the 2015-2020 parliament. The Town and Country Planning Association suggests an average of 240,000 new builds are required annually. At the Labour party conference Ed Milliband stated Britain will be building 200,000 homes a year by 2020 (interesting that this target is 9% lower than the 220,000 peak achieved in 2007 under Brown and 15% below Tony Blair’s 2005 maximum of 234,000). Finally, Danny Alexander told the recent Housing Market Intelligence Conference that the Liberal Democrat’s 2015 manifesto will include a goal of building 300,000 new homes per annum.
So plenty of targets but we are a bit light on strategies. The only way that I can see these higher levels of house building occurring will be if we do something very different. We have seen this happen before: there was the major council house building programme in the 50s, the new towns like Milton Keynes in the 60s and in the 1920’s we had the Garden Cities initiative that created places like Welwyn. The idea of a new wave of Garden Cities is being suggested as a solution. In fact, Lord Wolfson of Next has even put up a £250,000 prize for the best idea on where and how to build a new Garden City. Building self-contained communities as opposed to new developments on the outskirts of existing towns could dramatically increase the number of plots. But, getting this through planning and judicial review isn’t likely to happen fast given the time that HS2 is taking. Unless of course there is radical change in the way that we grant planning permission for national strategic projects, like the French seem to do.
As a supplier of products used for house building it would be great to see demand grow to 300,000 new build homes per annum, but until I see the start of any major change I will be planning to serve a market of up to 200,000 new build homes per annum. I will also be looking at continuing to grow the market for aircrete beyond housing into schools, healthcare and other types of building so that the growth of H+H is not constrained by limits on house building activity.